AUSTIN, MINN. — Hormel Foods Corp. faced multiple challenges during its third quarter, including higher avocado prices in California, African swine fever in China and the negative impact of Jennie-O Turkey Store voluntary product recalls. Amid the uncertainty, the company still reported financial results that appeared to exceed investor expectations.
Hormel’s net earnings of $199.4 million, or 37c per share on the common stock, in the quarter ended July 28 were down 5% from $210.4 million, or 40c per share, in the third quarter of the previous year. Net sales slipped 3% to $2,290.8 million from $2,359.1 million as the divestiture of the CytoSport business impacted sales negatively. Hormel in April completed the sale of CytoSport to PepsiCo, Inc. for $465 million. Third-quarter organic net sales were flat.
Results were in line with expectations, said James P. Snee, president and chief executive officer.
"Disciplined pricing, strategic promotional activity, effective advertising and insight-led innovation all played a positive role in our performance,” he said.
Hormel’s shares on the New York Stock Exchange closed at $42.95 on Aug. 22, the day third-quarter results were announced, which was up nearly 5% from a close of $40.97 on Aug. 21.
“While we admit our expectations were low for this quarter, we believe management deserves credit for navigating an uncertain environment well thus far,” said financial services firm Edward Jones.
Edward Jones maintained a “hold” rating on Austin-based Hormel, pointing out that predicting futures prices for hogs will be difficult with the African swine fever spreading from China to other regions.
“So far we believe the company has dealt with this development well, such as managing the pricing of its products, but we would characterize the outlook as highly uncertain,” Edward Jones said.
In the third quarter, double-digit earnings growth in Hormel’s Refrigerated Foods segment offset weaker results in Grocery Products.
Within Refrigerated Foods, segment profit rose 13% to $171.8 million. Net sales increased 1% to $1,301.1 million. Hormel reported strong demand for food service items like Hormel Bacon 1 cooked bacon, Old Smokehouse raw bacon and Hormel Fire Braised products.
“Once again, Refrigerated Foods has demonstrated an ability to generate growth in a volatile market condition,” Mr. Snee said in an Aug. 22 earnings call. “The long-term growth of this segment continues to be driven by value-added products, disciplined pricing and a clear focus on innovation.”
“Segment profit declined 30% year-over-year due to the divestiture of CytoSport, higher avocado cost for our Wholly Guacamole business and lower earnings from our Skippy peanut butter spreads business,” Mr. Snee said. “Similar to what we experienced in 2017, avocado cost increased by over 100% during the quarter.”
The Skippy business was impacted negatively by a price reduction that Hormel took in the second quarter.
Within Jennie-O Turkey Store, two product recalls continued to impact the retail business negatively. Segment profit fell 9% to $21.3 million. Net sales dropped 5% to $298.8 million.
“While we continue to lap distribution losses, we have had a few small wins,” Mr. Snee said. “We expect the process of regaining distribution will go well into 2020.”